What does the future hold for fracking?

14/08/2014

Fracking is not a new process; the technology has in fact been in use since the 1940s. However, it is only now that fracking is becoming widely used as drilling technologies, particularly horizontal drilling, have advanced and made what can be a very expensive process profitable.

It is already big business in the US and it has had a hugely positive impact on the country's position as a leading oil and gas producer. But could it take off in other countries, and if so, what opportunities will this present for the oil and gas industry worldwide?

What is fracking?

Hydraulic fracturing, or fracking as it is more commonly known, is a process designed to extract gas and oil from shale rock. It involves directing a pressurised liquid consisting of water, sand and certain chemicals at the rock within a pre-drilled well to fracture it. This creates tiny fissures in the shale, through which natural gas and petroleum can escape and flow up the well.

There is no one-size-fits-all approach to fracking, and while the process essentially remains the same each time, the sequence of fracking treatments will differ from well to well and will be tailored to meet the particular needs of an individual rock formation.

What are the benefits of fracking?

Fracking allows oil and gas companies to access resources that would be unreachable using conventional extraction techniques, and it also facilitates extended production in older oil and natural gas fields.

In the United States, fracking is said to have revolutionised the energy industry by reducing the country's dependence on imports and leading to an increase in oil production as well as a reduction in gas prices. It is also said to have huge economic benefits in terms of job creation.

What's more, because natural gas-fired electricity production generates half the carbon dioxide of coal-fire production, there has been something of a shift from coal to gas in countries like the US where fracking has taken off, and this has resulted in a reduction in carbon emissions.

Why is it controversial?

Fracking has caused some controversy in recent years as countries around the world have begun to see it as a viable solution to their need for energy security. Critics have listed a number of concerns about the process, the first being the amount of water that is used.

Large volumes are pumped underground during fracking operations, and that water often needs to be transported to the fracking site in tanker trucks at a significant environmental cost.

However, as drilling firms point out, they work closely with local water planning agencies to ensure local water supplies are not disrupted, while they also use waste water from other industrial facilities and recycle fracking water for use in other wells where possible.

Then there are concerns over the chemicals that are used in some fracturing fluid mixtures. Critics are worried that these chemicals may escape and contaminate groundwater around fracking sites, possibly making their way into the local water supply.

Oil and gas companies dispute this. They insist that there has been no evidence of groundwater contamination as a result of fracking, and stress that the process usually takes place at depths well below where usable groundwater is likely to be found. Furthermore, when wells are drilled, steel casing and concrete are used to create a barrier to protect usable water.

The third of the main concerns opponents of fracking have is the alleged risk of earthquakes in areas where it is taking place. It is not the process of fracturing the shale rock that is thought to cause tremors, but the storage of waste water in injection wells deep underground.

Industry players argue that any tremors that do result from fracking are likely to be far too small to be felt by anyone, and even more unlikely to cause any damage. However, geologists have now linked an increase in earthquakes in certain US states to fracking for the first time, so it may be an issue for the oil and gas industry to address in the future.

Where is fracking taking place?

The US is undoubtedly the biggest player in the fracking industry. According to the country's Department of Energy, as of last year at least two million oil and gas wells had been hydraulically fractured.

The technology is used on up to 95 per cent of new wells drilled, with fracking now accounting for 43 per cent of US oil and 67 per cent of natural gas production.

However, rich shale oil and gas reserves have been discovered worldwide, and now other countries are beginning to see the potential of fracking to help them become more self-sufficient and less reliant on foreign producers.

In Europe, countries are still undecided, and there is growing pressure for governments to reach a verdict on whether to embrace fracking or not, thanks mainly to tensions in the Middle East and Russia that could put oil and gas imports at risk.

Bloomberg recently published a chart based on data from the US Energy Information Agency that showed the European Union has enough shale gas beneath the earth to free it from reliance on Russian energy for almost 30 years.

But there is strong opposition to fracking in some parts of Europe. France and Bulgaria have outright bans, while Germany and the Netherlands have moratoriums in place. So it could be some time before fracking becomes accepted across the continent.

It is a different story in China, where vast shale deposits have been discovered. The country is said to be planning a fracking revolution and has already invested in drilling technology from the US to aid it in its extraction efforts.

So what about other world regions? Well in Africa, the South African government is campaigning strongly for fracking to be rolled out across the country, while Australia is still debating the issue. Across the rest of Asia, the growth of fracking will depend on technical and legal matters.

In Southeast Asia in particular, competing claims to territory mean fracking isn't yet viable in many countries. As Gavin Greenwood, a risk analyst at Hong Kong based Allan & Associates, told the Diplomat, oil and gas companies cannot justify the huge investment required to begin fracking in Southeast Asia until there is legal certainty over who owns what.

The opportunities and challenges for the fracking industry

Although there is much uncertainty about the future of fracking globally, it is clear that there are countries around the world that are keen to get involved, and this could open up some huge opportunities, both for oil and gas companies and for professionals working in the industry.

According to the American Petroleum Institute, up to 80 per cent of natural gas wells drilled in the next ten years will require hydraulic fracturing if they are to remain operational. And that is just in the US, so the potential in other countries could be huge.

Estimates published by the US Energy Information Administration show that China's shale gas resources are double that of the United States, so it is highly likely that the country could be the next hotbed for hydraulic fracturing.

There are challenges to overcome elsewhere, but these too present opportunities. In Europe, the focus will be on addressing the concerns of opponents and proving that fracking is safe, will not harm the environment and will have economic benefits.

In Southeast Asia, if territorial disputes can be overcome, then the emphasis here will be on attracting the necessary talent to the region. Mr Greenwood told the Diplomat that Southeast Asian nations will need both foreign investment and skilled professionals if they are to develop their oil and gas sectors and add fracking to the mix.

Whatever happens, it looks as though fracking is here to stay, and it will certainly be an area to watch in the years to come as countries around the world fight to exploit what precious resources they have in a world where energy security is becoming increasingly uncertain.

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